Thanks for the pointer. I do have a couple of questions though:
Compliance Costs
Aren't the "compliance costs" entirely equal to labor cost (2.9 million people working 5.4 billion hours)? Not to suggest that we should preserve such jobs (I don't think we should) but to save the cost, you have to eliminate the jobs; not just from any particular company, but you eliminate that type of job from the entire economy. It seems to me (after growing up in a former mill town in Western Pennsylvania) that it can take a generation to eliminate the local effects of wiping out an industry ... even if it is good for the economy in general.
Disincentive Costs
Aren't disincentive costs really an accounting of the production that could have taken place had there been no negative incentives to hire additional labor or invest additional money? As such, isn't calling them a "cost" a bit misleading since eliminiation of this "cost" makes available no addition bottom line dollars? Isn't the positive effect of eliminating this cost called "growth." Isn't the stimulus aspect of tax policy accounted for in the the economic impact assessments of these various studies rather than in the cost accounting part of these studies?
Other Costs
Aren't these costs really a smattering of costs associated with audits, enforcement, tax-shelter overhead, and somesuch? Doesn't that make them really subcatagory of "compliance costs"? Do you have any studies that actually break out and differentiate that time spent by the accountant managing the Cayman Tax Shelter vs filing the quartly 10Q?
You might find these interesting:
A 1976 study in the Journal of Political Economy by Professor Edgar Browning found that the cost of taxes on labor was between 9 percent and 16 percent of each additional dollar collected.Given all this, the consensus seem to suggest a cost burden of far less than 65%, though the total economic burden (counting growth effects) are certainly higher ... but then growth stimuli are not costs in the cost accounting sense.A 1984 study by Professor Charles Stuart, published in the American Economic Review, found that the U.S. tax system as a whole costs 24.4 percent of each additional dollar collected.
A 1985 study by Charles Ballard, John Shoven and John Whalley, published in the National Tax Journal, estimated that economic distortions cost between 13 percent and 24 percent of revenue collected.
Another study that same year by the same economists, published in the American Economic Review, concluded that the cost of the U.S. tax system was between 15 percent and 50 percent of each additional dollar collected.
A 1987 study by Edgar Browning, published in the American Economic Review, found the cost of the U.S. tax system was between 31.8 percent and 46.9 percent of revenue.
A 1991 paper by Professors Dale Jorgenson and Kun-Young Yun in the Journal of Accounting, Auditing and Finance put the cost at 18 percent.
As with all these discussions, the devil is in the detail; it's not a question of whether such costs exist, it's a question of how big they really are, and much really flow directly into product pricing.
Aren't disincentive costs really an accounting of the production that could have taken place had there been no negative incentives to hire additional labor or invest additional money?
Actually that more describes "oppertunity costs" more than disincentive costs.
Disincentive cost include the costs of alternatives chosen for their tax sheltering and avoidence as opposed to productivity improvements possible were resources applied to their most productive use without tax concerns, it is the choice of doing a thing to create a deduction to shelter income or minimize taxes rather than produce product.
A fair run down of what comprises Overhead costs as opposed to opportunity cost can be found here.
| http://www.taxfoundation.org/compliance2002.html |
Overhead Compliance CostsThe complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers. *** snip ***
The Burden of Compliance CostsAs shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion. Therefore, the overall compliance cost surcharge alone amounts to nearly 20.4 cents for every $1 collected by the federal income tax. |
Given all this, the consensus seem to suggest a cost burden of far less than 65%, though the total economic burden (counting growth effects) are certainly higher ... but then growth stimuli are not costs in the cost accounting sense.
As far as your cites broader and more uptoday estimates exist beyond those you cite, for each study is highly dependant upon how much is included in the authors scope of his study and what is included into his determinations.
Payne is actually a more central figure among many.
http://www.heritage.org/Research/Taxes/hl565.cfm
An American Economic Review study found that every dollar of taxes could impose as much as $4 of lost output on the economy, with the probable harm ranging between $1.32 and $1.47
Edgar K. Browning, "On the Marginal Welfare Cost of Taxation," American Economic Review, Vol. 77, No. 1 (March 1987), pp. 11-23."Another study in the Journal of Political Economy estimated that the corporate income tax costs more in lost output than it raises for the government."
Jane G. Gravelle and Laurence J. Kotlikoff, "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, Vol. 97, No. 4 (1989), pp. 749-780.
Killing the IRS, By Daniel J. Pilla, Reason Magazine July 1995
"There is little about a flat-tax system that will trim the staggering cost of tax law compliance. At present, this burden is estimated at $700 billion annually. Much of the cost is associated with recordkeeping and tax law enforcement, neither of which is reduced by a flat tax. A flat tax certainly involves a simpler tax return, but return preparation is the smallest component of tax law compliance.
The solution to our tax problem is to adopt a national retail sales tax in place of the personal and corporate income tax. Only a sales tax can eliminate the invasiveness of the IRS, since one's income and lifestyle are irrelevant."
Chief Executive, The New directions in tax reform -
May 1995.
Tax expert Ernest Christian Jr., a partner with Washington's Patton, Boggs & Blow, reckons these are low estimates or at best incomplete. Citing a U.S. Treasury study which indicates that 6 billion man-hours are consumed each year just in the record keeping for income and payroll tax returns alone, Christian says the true burden on the U.S. economy is probably closer to $1 trillion. For example, Jane Gravelle of the Congressional Research Service estimates that economic loss from the corporate income tax is equal to about 97 percent of the corporate tax revenue collected.
STATEMENT OF REPRESENTATIVE DICK ARMEY
HEARING ON THE IMPACT ON
INDIVIDUALS AND FAMILIES OF REPLACING THE FEDERAL INCOME TAX
Committee on Ways and Means, Full Committee, 4-15-97 TestimonyHinders Economic Opportunity
According to a study by Jane Gravelle, an economist with the Congressional Research Service, and Larry Kotlikoff, an economist at Boston University, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury.
Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises in revenue through the current system costs the economy $1.39.
Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "
As with all these discussions, the devil is in the detail; it's not a question of whether such costs exist, it's a question of how big they really are, and much really flow directly into product pricing.
And also highly dependant upon by whom and when any particular study was done, and the root purpose of the study. Which is why Payne's number is useful, because it is a compliation of the results of many economic studies by manny different researchers not just one source.